Mistake #1: Buying a house you can’t afford.
Buying more home than you can afford can lead to disaster. Don't get in over your head. Most lenders suggest that mortgage debt should be no more than 30 per cent of your gross monthly income. Besides your mortgage payment, be prepared for the additional costs of homeownership, such as insurance, property taxes, utilities and upkeep. And don't forget closing costs, says reader JD56CRW. The land transfer tax and other legal costs can easily mean another $5,000 or more, he warns.
Remember also that interest rates really have nowhere to go but up. Laurentian Bank, for instance, warns that rates in Canada could jump as much as three per cent in the next few years, starting in 9-12 months. That means, on a 35-year $250,000 mortgage, your payments would jump from around $1,000 to more than $1,400, potentially blowing your debt ratio out the window.
Mistake #2: Not investigating the neighbourhood.
What good is finally snagging that dream home, if the surrounding community isn't up to scratch? Make sure the neighbourhood is a good fit for your lifestyle — figure out how long you want your commute to be, how close you want to be to amenities like public transport, shopping and nightlife, where the school boundaries lie and even local crime statistics.
What about the neighbours themselves? Are you moving next door to an elderly couple patiently waiting for their son to mow the ragged lawn? What about a group of college students or, worse, that parade of seemingly unrelated individuals? That's what happened to RobDub when his absentee neighbours rented their house to "some real winners" who proved hard to get rid off.
Mistake #3: Not getting pre-approved financing.
Before you start house hunting, narrow down your price range by getting pre-approved from a lender or mortgage broker. Initially, they can provide an estimate that spells out the likely terms of your potential loan, including the interest rate and closing costs, warns a mortgage savvy Mosin. Getting pre-approved let's you know what you can afford, which gives you confidence when it comes time to making an offer and negotiating.
But don't confuse a written mortgage pre-approval with an actual lender with a pre-qualification, which is just an opinion that you probably can get a mortgage. Pre-approvals are only issued by actual mortgage lenders, such as banks and credit unions, but mortgage brokers can obtain these pre-approvals from a variety of lenders.
Mistake #4: Not inspecting the premises.
The cost of a professional inspection — usually somewhere around $600 — is a small price to pay to ensure your prospective property is free of major defects. Sellers aren't likely to tell you there's mould in the basement or that the walls are poorly insulated.
You want an inspector who has experience with the type of property you plan to buy. There are specialists who focus on different types of homes and those who focus on certain issues, such as health concerns and allergy prevention.
Unless you're willing to deal with the resulting recriminations, steer clear of well meaning friends and relatives, warns a chastened Poverty101. Letting family members check things out before they bought led to a mess of unforeseen expenses, including roof repairs and new plumbing.
Mistake #5: Not reviewing the purchase contract closely.
Purchase agreements are incredibly detailed, but it's necessary to review them carefully, both on your own and with your lawyer. Pay attention to all clauses, covering everything from inclusions in the sale to closing dates. If you leave anything out and the seller accepts and signs the contract, you're going to be out of luck.
When DUART closed on her new townhouse, she was disappointed to discover that buying and installing various utility meters had suddenly become her problem — not the builders.
Mistake #6: Buying a fixer-upper.
The classic tip for real estate buyers is to buy the worst house on a good street. But you've got to be careful. In got taken for a ride's case, a shoddy inspection turned a new purchase into a DIY nightmare.
Even if you can see that there's work to be done, don't overlook the fact that home repairs can be a stressful and expensive proposition, particularly if they turn out to be more than you bargained for.
In general, anything you have to hire a pro to do is likely to ruin your budget. Get estimates on any necessary repairs and renovations and make sure they'll pay for themselves down the road. Weigh the costs of fixing up the property against the savings and peace of mind you'll likely enjoy by buying a lower-maintenance home.
